9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2008 (8) TMI 921 - AT - Income TaxChallenged the order passed by CIT u/s 263 - assessment framed by the AO is erroneous in as much as prejudicial to the interest of revenue - no inquiry had been made by the AO before the assessment mid there was cash payment exceeding ₹ 20,000 which is required to be considered for disallowance u/s 40A(3) - HELD THAT - In the instant case, we found that assessment was framed by the AO after due inquiry and verification of the books of accounts and other details. Justifiable addition has also been made by the AO, merely because the books of accounts which were destroyed could not be produced before the CIT, as unreasonable view for estimating the profit at the rate of 8 per cent cannot be substituted for the decision of the AO which has been arrived at after verification of books of accounts, details of expenses, reason for low GP rate etc. Therefore, we found that action of CIT is net sustainable on facts and in law. On merits also, no expenditure in excess of ₹ 20,000 have been made in cash, as found by AO on subsequent inquiry which framing assessment u/s 263/143(3). There is also no justification for computing the profit at the rate of 8 per cent when the reasonable addition has already been made by the AO after taking into account various facts and circumstances of the case Including nature of assessee s business, reason for decline in GP rate, possibility of over statement of expenses or that of unverifiable nature of expenses etc. Hence, the order passed by CIT u/s 263 is set aside and the appeal of the assessee is allowed. In the result, the appeal of the assessee stands allowed.
Issues Involved:
1. Whether the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of revenue. 2. Whether the AO made sufficient inquiry regarding the genuineness of expenses claimed and disallowance under section 40A(3). 3. Whether the application of net profit rate by the Commissioner of Income Tax (CIT) under section 263 was justified. Issue-wise Detailed Analysis: 1. Erroneous and Prejudicial Assessment Order: The CIT issued a notice under section 263, questioning the AO's assessment order for being erroneous and prejudicial to the interest of revenue. The CIT highlighted that the AO did not make adequate inquiries regarding the genuineness of expenses and the disallowance under section 40A(3). However, the tribunal found that the AO had indeed conducted a detailed examination of the books of accounts, expenses, and other relevant documents. The AO had test-checked the books, discussed the low Gross Profit (GP) rate with the assessee, and made an addition of Rs. 5.60 lakhs to the returned income after thorough consideration. The tribunal emphasized that merely because the CIT disagreed with the AO's view does not render the AO's order erroneous or prejudicial to the interest of revenue unless the AO's view is unsustainable in law. 2. Inquiry into Genuineness of Expenses and Section 40A(3) Disallowance: The CIT argued that the AO failed to investigate the genuineness of the expenses and did not consider disallowances under section 40A(3) for cash payments exceeding Rs. 20,000. The assessee provided evidence that the AO had examined the expenses and found certain inadmissible expenses, leading to the addition of Rs. 5.60 lakhs. The tribunal noted that the audit report attached with the return did not indicate any cash payments exceeding Rs. 20,000. Further, in the subsequent assessment to give effect to the CIT's order, the AO confirmed that no such cash payments were made. Therefore, the tribunal concluded that the AO had applied his mind and made necessary inquiries, and the CIT's grounds for invoking section 263 were not valid. 3. Application of Net Profit Rate by CIT: The CIT directed the AO to apply a net profit rate of 8%, which was not mentioned in the initial notice under section 263. The tribunal found this direction unjustified as the AO had already made a reasonable addition after considering the low GP rate and other factors. The tribunal referred to legal precedents stating that section 44AD, which allows for an 8% profit rate, is not applicable to cases where the turnover exceeds Rs. 40 lakhs and proper books of accounts are maintained. In this case, the assessee's turnover was Rs. 6.21 crores, and the books were duly audited and verified by the AO. The tribunal held that the CIT's application of an 8% profit rate was not warranted and that the AO's addition of Rs. 5.60 lakhs was reasonable and justified. Conclusion: The tribunal set aside the CIT's order under section 263, concluding that the AO had made a proper assessment after due inquiry and verification. The tribunal emphasized that the CIT cannot substitute his judgment for that of the AO unless the AO's order is shown to be erroneous and prejudicial to the interest of revenue. The appeal of the assessee was allowed, and the AO's original assessment order was upheld.
|
